Sasol shares surge almost 11%, but a fuel hike in July is inevitable if the Middle East situation escalates. From Moneyweb.
Brent crude surged over 7% on Friday following Israel’s drone strike on Iran, which reportedly hit nuclear enrichment facilities, ballistic missile factories and air defense systems, and saw retaliatory action by Iran.
The attack also killed several high-ranking Iranian officials and nuclear scientists. Iran is reported to have launched more than 100 drones of its own in retaliation, some of which are reported to have been intercepted by Jordan and Iraq.
The rand [ZAR] weakened to around R18 to the US dollar on Friday, reversing much of the gains of recent weeks. However, in the early hours of Saturday morning, traded around R17.95 to the greenback.
The JSE All-Share Index (Alsi) closed almost 1.8% down on Friday, with the biggest loser being the Financial 15 index, down over 2.7% on the day.
Friday’s big decline in the Alsi wiped off most of the gains seen in the last two weeks, after the JSE hit new records last week and on Thursday.
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However, Sasol shares jumped nearly 11% on Friday on the back of the oil price spike.
Reuters reported no damage to oil installations in Iran, though oil prices surged over fears that Iran’s military response could lead to conflict escalation in the region.
As recently as Thursday, JP Morgan said it was sticking to its base case oil price forecast for 2025, projecting Brent crude will trade in the low-to-mid $60s, despite a sharp escalation in geopolitical tensions involving Iran. But markets have already priced in a risk premium, with Brent trading near $74.4 a barrel and West Texas Intermediate at $73.33 on Friday.
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Other analysts warned of a potential for the conflict to drive oil above $100, particularly as Israel has said its campaign to stop Iran’s nuclear development enrichment programme could last for several more days, even weeks. Much depends on the Iranian response, which could include throttling supply through the Strait of Hormuz, through which 20% of the world’s total oil consumption passes.
The rand weakening against the dollar on Friday, on news of the military escalation in the Middle East, will put pressure on the SA Reserve Bank’s efforts to counter inflation should the ZAR remain at these elevated levels.
Research by the Sarb shows a sustained $10 increase in Brent crude oil can lead to a 5-7% increase in fuel prices, depending on exchange rates, adding about 0.2-0.3% to headline consumer inflation.
The weaker rand coupled with rising Brent prices, if sustained, will lead to higher fuel prices for SA in July and possibly coming months.
JP Morgan’s prognosis for oil to remain in the low-to-mid $60s is based on diplomacy winning the day after the overnight attack by Israel.
Safe haven assets such as gold surged to $3 445 an ounce in early morning trade, but retreated to $3 426/oz in the afternoon. AngloGold Ashanti was up nearly 4% over the week and 14.45% over the last 30 days. Goldfields and Harmony were up more than 1.5% on Friday.
Bitcoin dropped nearly 4% on the day but appeared to be holding above the $104 000 support level.
Shiven Moodley, macro strategist at 80eight, says the market appears to believe there will be no serious escalation in bombing, but that could be a misreading of the situation. If there is further escalation, the market will continue to roil for some weeks.
